Markets
Oil remained at the center of attention today, if only because there was little else to inspire markets. The collapse of the ceasefire is not particularly suggesting that the US and Iran are close to a permanent agreement which settles, amongst others, on a safe and unhindered passage through the Strait of Hormuz. That should put a solid bottom below the price of Brent for the time being. A barrel indeed went for lower prices in Asian and early European dealings but found support around $77 pretty soon. It is currently trading near yesterday’s close ($78.5). We shouldn’t forget about gas prices either. They feature the ECB’s discussions as well and have risen towards the €50/MWh barrier, closing in on the Q2 highs seen in March and early June. With energy prices moving quickly from the European central bank’s milder scenario back towards the baseline (which assumes 2 to 3 rate hikes), euro area money markets are readjusting their policy views again. An October hike is fully priced in with another one in December given a 50% probability. The central bank itself made it a priority, though, not to signal last month’s June to be a one-off nor to be the start of a cycle, today’s released minutes of that meeting showed. Vigilance remained warranted nonetheless, with further indirect effects seen in the pipeline and second-round effects remaining a clear possibility. “It was suggested that the evolution of underlying inflation dynamics was indicative of persistent rather than temporary underlying price pressures and therefore a cause for concern.” The June deliberations took place prior to the MoU and subsequent oil price drop but hold their relevance because of the developments in these past 48 hours. In terms of yields the lack of a further sharp rise in oil/gas prices took some of the heat at the front end of the curve. German rates ease 4 bps in the 2-yr bucket. The long end ekes out 1 bp still. Treasury yields show a similar curve shift, losing 3 bps at the short end while adding 1 bp at the longest maturity. Gilts outperform after paying the biggest price yesterday, resulting in net daily changes varying between -4 (30-yr) and -6 bps (2-yr). Currency markets trade stoic as ever. EUR/USD is going nowhere around 1.142 with an early attempt for a gentle rise ending in tears. DXY and 101 have been inseparable all week so far. Sterling does go in reverse, allowing EUR/GBP to stage a minor comeback towards 0.853 in technically insignificant trading. Stock markets hold an optimistic view on the conflict. The EuroStoxx50 recoups about half of yesterday’s losses. Wall Street opens higher as well, led by tech.
News & Views
A quarterly report of the Bank of Japan on the regional performance painted a constructive picture. The report summarized that ‘All nine regions reported that their respective economies had been recovering moderately, picking up, or picking up moderately, although some weakness had been seen in part’. Companies have increasingly secured alternative supply to cope with shortages due to the conflict in the Middle East. (Export) demand and orders related to AI continue to increase. Companies also reported to maintain an active investment stance. Corporate profits remain strong and labor shortages persist. In this respect, companies implemented wage increases in fiscal year 2026 that were as large as those in fiscal year 2025. Consumption (including tourism) mostly is seen as remaining strong. Regarding prices, many businesses continue to pass higher labor and logistics costs on to customers. The report will be (important) input at the next BOJ policy meeting scheduled for July 31. Even so markets still only consider a next BOJ rate hike (chance of +50%) in the final quarter of the year.
Governor Glapinski of the National Bank of Poland commented on yesterday’s NBP policy decision. The NBP yesterday left its policy rate unchanged at 3.75%. Inflation in June decreased at the NBP’s 2.5% target from 3.1% due to a decline in prices for fuels and food. In new model forecasts the NBP upwardly revised its inflation 2026 CPI forecast to 2.4%-3.3% (from 1.6%-2.9%) and for 2027 to 1.5%-4% (from 1.1%-3.7%). The 2028 forecast was little changed at 0.8%-3.9%. At the same time 2026 and 2027 growth forecasts were slightly downwardly revised (3%-4.4% and 1.8%-3.7% respectively). The NBP in its statement didn’t give any concrete ‘bias’ on its intentions, making next policy steps dependent on incoming information. Governor Glapinski still suggested some tendency. He confirmed that CPI could rise somewhat in the coming quarters but that it is expected to stay within the target range. He also assesses wage growth to be slowing significantly. He assessed the MPC bias as cautiously dovish and personally he even sees a rate cut possible in 2026. The MPC might be less cautious toward rate cuts by mid-2027. The zloty over the previous months underperformed the forint and the Czech koruna. EUR/PLN is at risk of breaking above the 4.30 area that marked the top off a sideways consolidation pattern since April last year.
